066. Parent Subsidiary Directive - German Implementing Provisions Violate EU Law

KPMG Germany Webpage
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The Parent-Subsidiary Directive (90/435/EEC - hereinafter: "the Directive") provides inter alia for the elimination of withholding tax on dividends paid by EU subsidiaries to their 25 % EU parent corporations. In the case of Germany, withholding tax on dividends was first reduced to 5 % before being eliminated entirely effective 1 July 1996.

The European Court of Justice has now held in a decision dated 17 October 1996 (DB 1996, 2313) that German law (sec. 44d par. 2 EStG) violates the Directive to the extent it makes a reduction in withholding tax on dividends contingent upon the parent's having held a 25 % share in the subsidiary for a period of 12 months prior to the dividend's receipt by the shareholder.